What Qualifies as High Net Worth?
You may wonder how “high net worth” is defined. Years ago, wealthier individuals were referred to as being “millionaires,” but by today’s financial standards, that term is dated. The generally accepted levels of wealth that push a person into the “high net worth” category are as follows, according to Forbes:
- A high-net-worth individual owns liquid assets with a value of $1 million or more. Liquid assets are generally understood to mean actual cash or other assets that can quickly be converted into cash without losing any value. Real estate and expensive collectibles are not considered liquid assets as they could take some time to convert to cash.
- Very high-net-worth individuals are those with liquid assets worth between $5 and $30 million.
- Ultra-high-net-worth individuals are those with more than $30 million in liquid assets.
The “formula” used to determine whether an individual falls into one of the above categories is simple—Net worth equals assets minus liabilities. This would tell you what your net worth is, but not what your liquid assets are. As an example, your home, cars, vehicles, bank account balances, collectibles, and investment accounts might be worth $1.5 million.
If you have $250,000 in liabilities such as student loan and credit card debt, loan balances, alimony, etc., then your net worth might fall at $1.25 million, however, the worth of your liquid assets might be only $200,000. In 2020, approximately 11.6 million American households held a net worth between $1 and $5 million. If you are a high net-worth individual, you require highly specialized services, including HNW estate planning and administration.
Case Illustration for a HNW Individual with State and Federal Tax Implications
Harvey is a high-net-worth individual who makes an appointment with an experienced NC Planning attorney to discuss strategies for minimizing state and federal taxes. After comprehensively looking at Harvey’s assets and liabilities, our attorneys offered the following advice:
- Convert his traditional IRA to a Roth IRA, making distributions tax-free. Since these distributions are not considered investment income, Harvey’s adjusted gross income will not be increased.
- Since Harvey owned a business operated as a sole proprietor business, he was urged to change the structure of his business to a C-Corp which offers lower taxes than the other types of business structures.
- Finally, Harvey was advised to invest in tax-exempt bonds because interest earned on these bonds is not subject to federal income tax.
Understanding Your Goals for HNW Estate Planning and Administration
With wealth comes responsibility, and that responsibility includes ensuring that you have chosen an experienced Greensboro, NC high net worth estate planning and administration law firm. Estate planning under any circumstances can often be challenging, however for high-net-worth individuals, the complexities can be significantly greater, particularly since it can be difficult to keep up with constantly changing financial rules and laws. Consider the following as parts of your HNW estate planning and administration.
- Wealth Preservation begins with a solid financial plan that will protect wealth now and for future generations. You will identify your goals, and then we will recommend actions that will help you achieve those goals. One aspect of wealth preservation may include having money earmarked for emergencies or future large purchases, which prevents you from having to prematurely withdraw money from CDs or retirement accounts, losing money in the process. Diversification of investment portfolios is another way to manage wealth and involves never putting all your money into investments with the same risk class. For those who can afford it, disability and long-term care insurance can protect your assets from changes to your health or career. Life insurance is a good way to protect your family no matter your wealth level, and it’s always best to purchase life insurance when you’re young, locking in those rates. Thoughtful tax planning can ensure that as much of your wealth is passed onto your loved ones as possible. Your HNW estate planning and administration attorney from NC Planning can help you utilize every tax planning strategy available.
- Security for Generations—Spend designations and restrictions can be a part of your trust documents and your overall comprehensive estate plan if you are concerned about financial security for future generations. Some individuals are concerned that by allowing all of an inheritance to go to a specific beneficiary, the money and assets could all be gone in a short amount of time. A trust allows you to set certain rules for when and how funds from the trust can be distributed to beneficiaries for long-term financial stability. A trust can distribute a portion of the money at stated intervals, ensuring that the beneficiary is still encouraged to work and earn a better salary. Since you know your beneficiaries and can at least guess how they will respond to being given a large sum of money, it is sometimes better to tie the trust distributions to age, rather than milestones like graduating from college or getting married.
- Charitable Giving—If charitable giving is important to you, you could make it a prerequisite for future trust asset distributions. You could even tie participation on a board of directors for a charitable foundation to trust fund distribution. You can set up your trust so that it continues to donate funds to the charities you choose after you pass, and so that your heirs will also participate in charitable giving.
- Selecting a Trustee to administer your trust after you are gone is truly one of the most important aspects of HNW estate planning and administration. Your successor trustee must manage the trust faithfully, distribute and invest trust assets, keep careful records, and comply fully with state and federal tax laws as well as all other regulations. Unlike the executor of an estate whose work typically ends once the estate is settled, a trustee signs on for the life of the trust which could be a decade, two decades, or even longer.
Foundational Tools for HNW Estate Planning and Administration
While your specific HNW estate planning and administration goals and documents to achieve those goals will be unique to you, these are some of the most commonly used documents.
- Financial Power of Attorney—This document allows an agent named by you to take over your financial and legal affairs, including property issues, in the event you become incapacitated. This allows a trusted person to manage your bank accounts, buy and sell property, and manage other assets as well.
- Healthcare Power of Attorney—When you have a Healthcare Power of Attorney as a part of your estate plan, you will name someone you trust to be your agent and make healthcare decisions on your behalf in the event of your incapacitation.
- HIPAA Authorization—A HIPAA authorization form, on its own, limits information sharing only to what is necessary while a Healthcare Power of Attorney is a legal document that allows you to determine your agent’s level of authority and information access. A HIPAA form is useful to add to your plan, as it outlines which person or persons can receive information from your doctors.
- Living Wills—Even when you have a HIPAA form and a Healthcare Power of Attorney, a Living Will can be an important component that clearly and explicitly states your wishes regarding medical treatments and decisions. As an example, if you do not want heroic measures such as a feeding or breathing tube, you can state these wishes in your Living Will.
- Life Insurance is important for everyone, regardless of their level of wealth, but it can be especially important to a high-net-worth individual and his or her heirs. You can name a beneficiary or beneficiaries for your life insurance policies that will not be dependent on probating a will or distribution of trust assets.
- Guardianship Documents—Naming a trusted person as your guardian in the event of your incapacitation could prevent your family from having to go through a long and painful court process.
Asset Protection Plans
Asset protection for high-net-worth individuals is significantly different than asset protection for the “average Joe.” This means that there are assets, and there are assets, which could include multiple high-end properties and vehicles, one or more businesses, subsidiary companies, stocks and bonds, investment accounts, and significant liquid capital.
As a high-net-worth individual, you have more investment options, better tax reduction opportunities, more flexibility regarding insurance, and the ability to diversify your assets. An experienced HNW estate planning and administration attorney from NC Planning will help you incorporate contingencies and anticipate possibilities that may arise to threaten your estate. We will ensure you multiple layers of protection that integrate well together, defending you against every conceivable financial or legal hazard.
Charitable Planning
- 2026 BBB Bill—In 2026, the federal estate tax exemption will “sunset,” meaning it will automatically decrease from $12.06 million per person and $24.12 million for married couples to about half that, or roughly $6 million per person and #12 million for married couples. If your taxable estate is near these numbers and you don’t want to pay the roughly 45 percent federal estate tax, you need charitable planning.
- CRT– A Charitable Remainder Trust is an irrevocable trust that is funded with cash or securities and can provide you or your beneficiaries with a stream of income then the remaining assets in the trust revert to the charity of your choice upon your death, or the trust expiration period.
Trusts
- Revocable Trusts are the most common type of living trust and are widely used by those with significant wealth as well as those with fewer assets. A Revocable Living Trust allows high-net-worth taxpayers to avoid probate, protecting your privacy, and allowing your beneficiaries to skip the long and sometimes expensive process of probate.
- ILITs (Irrevocable Life Insurance Trust) is a type of trust that is designed to hold a life insurance policy so the proceeds of that policy can avoid estate taxes. This type of trust cannot be dissolved or revoked, barring a failure to pay life insurance premiums.
- IDGTs (Intentionally Defective Grantor Trust) are used by high-net-worth individuals to transfer wealth to family members during the grantor’s lifetime, allowing the grantor to pay the trust’s income tax bill during his or her life.
- SLATs (Spousal Lifetime Access Trust) is an irrevocable trust that allows a donor spouse to gift assets into a trust that will benefit the other spouse, removing the assets from the combined marital estate
Business Succession Planning
Business Succession Issues are always a consideration for high-net-worth individuals, whether for a family “office,” or a family business. You will need to answer questions like whether the company should be sold now at its current value, or whether it should continue as a family business. Are the potential heirs of the family business up to the task of managing the company, and what will the arrangement be between equity inheritors who work in the family business as opposed to those who choose not to? A succession plan for the business as well as naming those who will accomplish the plan, is crucial to determining whether and how you want your business to continue after you are gone.
How NC Planning Will Help You Plan for the Road Ahead
While recognizing that you have choices when you are looking for the best HNW estate planning and administration law firm, at NC Planning we believe strongly that once you speak to an attorney at our firm, your choice will be clear. Once you have chosen NC Planning, we will take on a role that involves offering strategic, targeted advice, while answering all your questions in a thorough, yet easy-to-understand manner. We consistently deliver comprehensive Client Care—in fact, this is the essence of our culture at NC Planning. We provide open communication, accountability, compassion, and responsiveness to every client at every single turn. We are never judgmental or discriminatory in any way while providing a friendly, family-like atmosphere. If you are looking for quality HNW estate planning and administration services, NC Planning is here to ensure your estate plan is tailored specifically to you, your situation, and your goals. With offices in Cary and Raleigh, we assist those in these areas as well as surrounding communities like Greensboro. Contact NC Planning today.